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Short Cuts

Howard Hotson

In July last year, two months after assuming his duties as minister for universities and science, David Willetts granted university status to BPP University College of Professional Studies, making it only the second private institution in England, after the University of Buckingham, to be given the power to award degrees.[1] BPP is nothing like the private but non-profit American universities which dominate the top of the World University Rankings. It is one of a new breed of private, for-profit institutions which have proliferated in the US over the past ten years. BPP, whose 14 regional campuses already have 36,500 students, has since 2009 been owned by the Apollo Group, the leading for-profit educational corporation in the US.

The fat years for the industry started with the deregulation of higher education under George W. Bush, who appointed the Apollo Group’s chief Washington lobbyist, Sally Stroup, as assistant secretary for post-secondary education. But the boom proper began in the wake of the financial crisis of 2008, which produced huge numbers of unemployed, unqualified people anxious to get their hands on the diplomas that might help them secure decent jobs. As the rest of Wall Street plunged, Apollo’s turnover grew by 25 per cent to a total of $4 billion between 2008 and 2010. Its flagship, the University of Phoenix, is now the largest university in America, with a student body of 500,000. That’s far more than the entire University of California system and the Ivy League rolled into one; the University of Phoenix is already the size of all the Russell Group universities put together.

The assumption guiding these new institutions is that the internet provides the ideal vehicle for delivering course material to less well-off students, who can study at home as suits their schedule. Automated instruction reduces expensive contact time and enables the institutions to pare estate costs to the bone, though some prefer to build new campuses their students will never visit to improve their brand image. Thanks to the near death of the job market in public universities there is no shortage of teaching staff desperate for work, which helps trim budgets still further. Some of these people don’t even have annual contracts, and can be relieved of their duties at little more than a moment’s notice.

The money that would once have been reserved for academic salaries is spent on marketing, which eats up as much as 25 per cent of expenditure: the Apollo Group spent $1 billion on marketing and student recruitment in 2010. Education is neither here nor there: if that is the fastest way to generate profit then no one will worry if a quarter of the funds are drained away from teaching. Phoenix’s aggressive advertising campaigns make sweeping claims for the quality of its courses and the value of its degrees. Telephone marketers, some of them paid not by the hour but by the signed application, are instructed to prey on people’s fears of being left behind by a fast-changing economy[2]. New recruits are to be lured in as quickly as possible – to this end, courses start at the beginning of every month. The crucial thing is to get the funding moving from federal coffers to the student’s debt ledger, through the university, and into the pockets of shareholders and chief executives. The three top executives at the Apollo Group each took home more than $6 million in 2008; the founder of the University of Phoenix, John Sperling, is a billionaire.

By the time students realise that they’ve made a terrible mistake, there is often no way for them to back out and no one to help on the other end of the phone; there’s nothing for it but to press ahead and try to recoup some return on their investment by finishing the course. But very few students do complete their degrees: according to government statistics, the six-year completion rate at Phoenix is 9 per cent. Those who do finish end up with debts twice those of graduates from ‘non-profit’ private universities and three times those of graduates from public ones. And the degrees they have acquired at such inflated prices often turn out to be worthless. Three former students interviewed for the PBS documentary College Inc., first broadcast in May last year, were handed nursing diplomas without having set foot in a hospital. A student talked into studying for a doctorate in psychology discovered when it was time to ‘graduate’ that her cybercollege only ‘aspired’ to the accreditation needed to award degrees of this kind.[3]

In 2004, a scathing report issued by the US Department of Education concluded that Phoenix, as the Chronicle of Higher Education put it, had a ‘high-pressure sales culture’ that intimidated recruiters who failed to meet targets and encouraged the enrolment of unqualified students – in short that it rewarded ‘the recruiters who put the most “asses in classes”’. Apollo illegally withheld the report, but it was leaked and the group’s value on the stock market crashed. A suit was brought alleging that its management had ‘disseminated materially false and misleading financial statements in an effort to inflate its stock price and attract investors’.

In 2006 the company’s controller and chief accounting officer resigned amid allegations that the books had been cooked; in 2007, the Nasdaq Listing and Hearing Review Council threatened to withdraw Apollo’s listing from the stock exchange; in 2008, a US federal jury in Arizona found Apollo guilty of ‘knowingly and recklessly’ misleading investors, and instructed the group to pay shareholders some $280 million in reparations. Apollo appealed, but the appeal was rejected by the US Supreme Court on 8 March this year.

In the face of strenuous lobbying from the for-profit university industry, the Obama administration is now reversing the regulatory changes of the Bush years that allowed this bonanza. It has just been revealed that attorney-generals in ten states are investigating the University of Phoenix ‘for possible deceptive practices in its student recruiting and financing’ dating back to 2002. It looks like the party may be over, at least for the Apollo Group. Enrolment at Phoenix dropped by 42 per cent in the last three months of 2010. In January the group conceded that it expects applications to drop by another 40 per cent in the first quarter of 2011.

Is it possible that Willetts just doesn’t know what the Apollo Group was up to at the University of Phoenix? Or does he imagine that for some reason the same thing couldn’t happen here? ‘By removing the privileged inner circle that gets the teaching grant,’ he argues, the shift from grants to tuition fees ‘opens up higher education to a wider range of providers doing things differently’. The explosive growth of for-profit universities was touched off by the decision of the Bush administration to give them equal access to the billions of dollars coursing through the federal student loans system. Now, the conditions are being put in place for something similar to happen here. In April, Willetts announced that from 2012, students starting courses at private institutions will be able to take out government loans of £6000 per year. Worse still, in September public funding for teaching in the humanities and social sciences will cease in England. The fear is that the most lucrative courses will be cherry-picked by profit-driven institutions. In the words of one strategic consultant, ‘England and Wales have just become Treasure Island to for-profit companies … UK students are in the business plans and sales targets of both domestic and international for-profits.’

Before the bubble burst, the University of Phoenix grew to be half a million strong. There is no telling how large BPP, its sister institution, might grow once its students have access to government-funded loans. Not that its numbers are insignificant even now. If its 36,500 students were studying for degrees (which they aren’t, yet), BPP would already be the third largest university in the UK – only Manchester and the Open University are bigger. And this is just the beginning.

[1] BPP stands for Alan Brierley, Richard Price and Charles Prior, who started the company in 1976 to offer training to accountancy students.

[2] Phoenix paid $67.5 million in 2009 to settle out of court a lawsuit backed by the US government alleging that it had used this illegal recruitment strategy.